Headline News By Jolson Lim 647 Views

Ottawa delays changes to taxing stock option gains past 2020 budget

The Liberal government is pushing the implementation of changes to the taxing of employee stock options to a later date.

Finance Canada had proposed the changes to come into force on Jan. 1, 2020, but announced late Thursday that it was delaying it past the 2020 budget.

The new coming-into-force date will be announced in the budget and “provide individuals and businesses time to review and adjust to the new employee stock option tax rules.”

The department said it is still reviewing input received during consultations that occurred last summer on which companies would be excluded from the changes.

Employee stock options are a type of compensation granted to employees and executives that offers them the right to buy a company’s stock at a set price over a given period of time, with benefits coming from increases to its value.

Currently, federal rules stipulate that such stock options benefits are taxed at half the normal rate for personal income — the same for capital gains.

Finance Minister Bill Morneau’s draft rules from June proposed taxing at the preferential rate for only the first $200,000 worth of grants for high-income recipients at large and mature companies.

The new rules are meant to target Canada’s top earners, who are disproportionately the ones to benefit from such grants.

Finance Canada had found in 2017 that individuals with annual incomes higher than $1 million accounted for almost two-thirds of the value of deductions claimed, but only represented six per cent of all claimants. On average, those earners claimed an average $577,000 that year.

But smaller-sized companies with lower profit margins have expressed concerns that imposing a limit would hurt their ability to attract top talent. Stock options are frequently given out by tech sector startups who are low on cash but high in promise to increase in value.

An issue the consultations were meant to address was where Ottawa would draw the line for which “start-up, emerging, and scale-up” companies would be excluded from the changes.

The department reiterated on Thursday its goal is to move forward with changes that both limit the benefit for top earners and ensure startups and emerging businesses can retain talent and grow.

Reforming the rules around employee stock option deductions was first promised by the Liberals in the 2015 election.